The 50/50 Debt Paying, Savings Building Method.

If you want to pay off debt and set money aside, the 50/50 method is the ideal path to take to achieve your goals!

With the 50/50 method, I managed to pay off an 18000$ loan a year ahead of time and build a 25k$ savings account for a down payment on a house. All while having a Low Income! (less than 2.5k/month)

What is the 50/50 Method?

The First 50% : Debt Payment

Once your budget has been established and you’ve cut out all the excess mentioned in this article.  You should have a left-over amount, whether it is 50$ a week or 500$(depending on your income and expense), you take half of the amount and add it to the highest interest loan’s minimum payment. Also known as the Avalanche method.  

You can also use the Snowball method if it keeps you motivated. The Snowball method is attacking your lowest debt and working your way up to your biggest debt. It will take longer to pay off all your debt, but you will see the first results much faster.

Once a debt is paid off, add its minimum payment amount to the next debt’s payment.

Or you can add the paid off debt’s minimum payment to your budget leftover money, this will enable you to add a bit more to your savings account.

Keep reading to find out more!

Concrete eexample of what a week’s budget would look like when I had my Car Loan and my Credit Card at some point, Using the 50/50 Method
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The Second 50%: Savings

As stated above you will have left-over money, the same amount as your debt payment. Use this half to contribute toward any savings goals; long-term or short-term goals.

If you do not currently have any savings, including an emergency savings account, I would start by building one! You never know when an Emergency will show up! You’ll definitely be glad to have it.

When Should I Consider this Option?

This method is especially good for people who don’t have back up options: single (kid or no kid), no family or friends to bail them out etc. That doesn’t mean that everyone else can’t use this method but its one of the many ways to achieve your financial independence

This method is also good if you’re like me in the middle unique situation, where you need to make a big purchase (my upcoming motorcycle) and your trying to save up for another big purchase (a house).  If you need a loan because your missing a couple dollars but don’t want to carry it out for the full term (5yrs in my case), you can pay off the loan a lot faster using this method and still benefit from the long-term low-interest rate.

If you’re looking for another method to try and see if you stay motivated than you can try! I’m giving you thumbs up for not giving up! Any reason or situation is good for any method, as long as your doing something about your debt.

What to do Once all Debt are Paid off:

Grow Your Savings !

Save It!

Once my debt was paid off and if I don’t have anything unexpected happening (I’ll spend my monthly leftover before digging into my emergency fund) I’ll put the money aside towards whatever goal I chose (motorcycle savings account, house down payment, grow emergency funds, upcoming trip)

The benefits of this option are that you already are used to not having that money on hand to spend, if your happy living as is, it will be way more efficient in a savings account than spent on some dust collecting object.

Spend It

Often, once you finish paying off debt, you’ve been neglecting and sacrificing life quality.  There is nothing wrong in taking PART of (not all) your 50% of debt payment and putting toward entertainment or buying things you really need around the house.

Example: 6 months after my last debt was paid off, we got fed up of having back pain because of our uncomfortable couch, I spent a little amount to get us another one, but it did not hurt me financially because I had the money set aside/on hand and did not take out a loan to pay it.

Conclusion

After paying off debt, I strongly suggest to always keep at least 50% of your leftover income going to saving. No matter what account/goal you’re contributing to.

Saving money doesn’t have to mean you have to stop enjoying life! And it doesn’t have to be your only goal either. Savings doesn’t always have to be about emergencies or surviving.  Try having fun financial goals in your budget such as vacations, dream car/motorcycle/boat.

I hope this technic will bring you as much success as it did to me in the past years. I’ve managed to pay off my car (my only debt) 13 months ahead of time. I also built a decent amount for a down payment for a house. I wish you the best of luck in your journey to pay off debt.

My First Bike : Ninja 300

I am putting my saving for a house on hold because I want a motorcycle that will not grow out of or fear it within a year.  What models do you recommend? Let me know in the comments below!

Let me know in the comments below what are your fun or not so fun savings goal.

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